CPA Financial Accounting and Reporting (FAR) : CPA Financial Accounting and Reporting (FAR)
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #1 : Accounting For Leases
During which period of time should a lessee amortize a leased property? The lease is a finance lease and contains a written option to purchase.
The lease term
The economic life of the asset
Whichever is the shortest of these options
The life of the asset capped at 30 years
The economic life of the asset
When dealing with a financing lease, the lessee should amortized the leased property over the economic life of the asset when there is a written purchase option or at the time the lessee obtains ownership of the asset.
Example Question #1 : Cost Of Goods Sold
During a period of falling prices, which of the following inventory valuation methods would yield the highest cost of goods sold?
Weighted average
FIFO
Impossible to determine based no the provided information
LIFO
FIFO
Under FIFO, the oldest inventory goes to COGS. In a period of falling prices, the oldest inventory has the highest cost, driving up COGS.
Example Question #2 : Cost Of Goods Sold
Troy, Inc has inventory with a FIFO cost of $17,730, net realizable value of $17,850, replacement cost of $17,490, and net realizable value less normal profit of $17,545. What amount should Troy report as ending inventory in its balance sheet at year-end?
$31,100
$64,800
$32,400
$16,400
$16,400
Under FIFO, the oldest inventory goes to COGS first. Here, a total of 10,800 units were sold; the first 8K of these were included in beginning inventory and cost $1 each. The remaining 2,800 units were included in the March 10 purchase at $3 each. Therefore, COGS is calculated as 8,000 units x $1 per unit +2,800 units x $3 per unit.
Example Question #3 : Cost Of Goods Sold
Larry, Inc had beginning inventory in January of Year 2 of 10,000 units costing $1 each. On February 14, 4,000 units were purchased costing $3 each. On April 20, 12,000 units were sold. On November 22, 6,000 more units were purchased at $6 each. What will Larry record as its cost per unit under a weighted average inventory system?
$3.33
$2.90
$4
$3
$2.90
Under the weighted average costing method, cost per unit is the average price of all inventory purchased. Larry spent a total of $58K (10,000 units x $1 + 4,000 units x $3 each + 6,000 units x $6). This total is divided by the total number of units purchased, which is 20K. To calculate cost per unit, the total cost of $58K is divided by total units of 20K.
Example Question #4 : Cost Of Goods Sold
Which of the following statements is a primary objective of accounting for income taxes? To:
Recognize the amount of deferred tax liabilities and deferred tax assets reported for future tax consequences
Identify all of the permanent and temporary differences of an enterprise
Compare an entity's federal tax liability to its state tax liability
Estimate the effect of tax consequences of future events
Recognize the amount of deferred tax liabilities and deferred tax assets reported for future tax consequences
The primary objective of income tax accounting is to recognize and account for deferred tax assets and liabilities.
Example Question #5 : Cost Of Goods Sold
As a result of differences between depreciation for financial reporting purposes and tax purposes, the financial reporting basis of a company's plant assets exceeded the tax basis. Assuming the company had no other temporary difference, the firm should report a:
Current tax payable
Current tax receivable
Deferred tax liability
Deferred tax asset
Deferred tax liability
If book basis of an asset is greater than tax basis, a deferred tax liability should be established for the tax effect of the difference.
Example Question #6 : Cost Of Goods Sold
Of the following, which would not be included in Cost of Goods Sold?
Manufacturing Overhead
Maintenance costs
Direct Labor
Direct Materials
Maintenance costs
DM, DL, and MOH are all included in Cost of Goods Manufactured and Cost of Goods Sold.
Example Question #1 : Current Liabilities
Company A has a contingent loss. At the end of Year 1, several possible losses and their probabilities are estimated, including a $130,000 loss (35% chance), $180,000 loss (55% chance), or $80,000 (10% chance). The company also believes it is reasonably possible that the loss could be as high as $230,000. In Year 2, the loss is settled for $172,000. What income statement effect will the company recognize in Year 2?
$8,000 recovery
$15,000 loss
$10,000 recovery
$68,000 recovery
$8,000 recovery
In Year 1, the company will record a contingent loss of $180K, because this is the most likely loss at a 55% chance. In Year 2, then company will need to adjust the liability to reflect the actual loss of $172K, recording an $8K recovery of cost.
Example Question #2 : Current Liabilities
Doe Corp has guaranteed the indebtedness of Rae Corp. Doe can reasonably estimate a loss on this debt ranging from $100,000 to $150,000. Which of the following statements is correct regarding the contingent liability recorded for this debt?
If no estimated amount is more certain than any other, no loss should be recorded
If no estimated amount is more certain than any other, the average possible loss should be recorded
If no estimated amount is more certain than any other, the maximum possible loss should be recorded
If no estimated amount is more certain than any other, the smallest possible loss should be recorded
If no estimated amount is more certain than any other, the smallest possible loss should be recorded
When recording contingent liabilities, a company should record the most likely loss amount. However, if no amount is more probable than any other, a company records the smallest possible loss.
Example Question #3 : Current Liabilities
Of the following costs, which is associated with exit and disposal activities?
Capital lease termination costs
Costs to relocate employees
Costs associated with the retirement of a fixed asset
Terminated employee benefits
Costs to relocate employees
Relocation costs for employees are related with exit and disposal activities.
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